Saturday, July 25, 2020

SpiceJet faces rough weather

Bengaluru: Low-cost carrier, SpiceJet, has flown right into severe turbulence due to stressed liquidity , a ratings downgrade, and to top it all, a $43-million case against the company by Bombardier for failing to honour contractual commitments.

SpiceJet has also failed to extract compensation from Boeing for the grounded B737 Max 8 fleet, though it has already accounted for a sum of ₹246 crore as income in the December 2019 quarter, the last quarterly results declared by the company.

SpiceJet had placed an order for 25 Bombardier aircraft with options for 25 more. Having taken delivery of five aircraft, the airline declined to acquire the rest citing “non-performance” as the reason.

Bombardier has now dragged the airline to court in the UK for $43 million against 20 aircraft (DHC-8Q-402) yet to be delivered.

A spokesperson for SpiceJet claimed that the charges are unfounded. “SpiceJet will defend its stand, and as the matter is now sub-judice, we would not like to comment further on the same,” he said. “The claims of the Canadian manufacturer are unfounded and completely denied by SpiceJet. SpiceJet has already fulfilled its contractual obligations and remains committed to its performances under its arrangement. SpiceJet, in turn, has a counter-claim for certain non-performance by the Canadian manufacturer, which is actively pursued by us,” the spokesperson said.

The legal wrangle with Bombardier comes even as the airline is grappling with liquidity issuesdue to low cash reserves and weak revenues that come mostly from its cargo operations rather than the main business of ferrying passengers.

Rating agency Crisil has downgraded its letter of credit facility which might make it difficult for the airline to raise additional funding. The downgrade factors in deterioration in SpiceJet’s liquidity profile, as reflected in the invocation of standby letter of credit , which remained unpaid for more than 30 days as on June 29. SpiceJet’s liquidity deteriorated because of disruption in operations, Crisil said in its note.
25/07/20 K Giriprakash/Business Line
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